An outcry from the mortgage industry has forced the Federal Housing Finance Agency to rescind a pending debt-to-income ratio fee change for home loan borrowers.
Homebuyers using Fannie Mae or Freddie Mac financing were facing a fee hike on loans if their debt ratio was determined to be above 40%.
On Wednesday, the FHFA said it “rescinded the upfront fees based on borrowers’ DTI ratios for loans acquired by Fannie Mae and Freddie Mac.”
The agency in March said it was delaying the fee change implementation to Aug. 1 in order to “engage with industry stakeholders and better understand their concerns.”
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“I appreciate the feedback FHFA has received from the mortgage industry and other market participants about the challenges of implementing the DTI ratio-based fee,” Director Sandra L. Thompson said in a statement released Wednesday, May 10. “To continue this valuable dialogue, FHFA will provide additional transparency on the process for setting the Enterprises’ single-family guarantee fees and will request public input on this issue.”
Mortgage broker and contributing writer Jeff Lazerson wrote about the DTI fees in April, explaining how certain borrowers would be charged a 0.375% fee on their loan amount if the ensuing house payment and other debts exceed 40% of monthly gross income.
Robert Broeksmit, president and CEO of the Mortgage Bankers Association, was among industry leaders who asked Thompson to reconsider the DTI fee change. He penned a blog post in April that beseeched the agency to come up with a better plan on so-called loan-level pricing fees.
“To start, tying an LLPA (loan-level price adjustment) to a DTI ratio would pose a multitude of operational issues, and compliance challenges, and also create a frustrating and confusing borrower experience,” he wrote.
“Imagine being a borrower who is quoted one rate when applying for a loan, then getting near closing and hearing from your lender that, due to a slightly slower month at work or a higher homeowner’s insurance premium, the cost of your loan will have to go up because you exceeded FHFA’s DTI threshold,” the blog post continued.
The FHFA is also mired in controversy over its decision to update the fee structure on LLPAs.
SEE MORE: ‘Culture war’ erupts over mortgage fee hikes for borrowers
The changes, Jeff Collins noted in a story in late April, were part of a long-overdue recalibration designed to strengthen Fannie and Freddie’s “safety and soundness.”
FHFA said some of the changes were aimed at helping first-time homebuyers and low- and moderate-income borrowers.
Among those changes:
— Elimination of upfront fees for moderate- to low-income first-time homebuyers as well as the elimination of fees for borrowers participating in affordable mortgage programs like HomeReady, Home Possible and HFA Advantage loans.
— Higher upfront fees for second-home loans, high-balance loans (ranging from $726,201 to $1.089 million) and cash-out refinances — loans that aren’t part of Fannie’s and Freddie’s “core mission.” Customers for these types of loans have other alternatives in the marketplace, The FHFA said.
Jeff Collins and Jeff Lazerson contributed to this report.